1988 PLP 1126 (MLD)

MUNIR A.SHEIKH, J.‑‑This is an appeal against the judgment and decree dated 8‑4‑1984 passed by Mr.Salah‑ud‑Dm Zafar, Special Judge Banking Court, Lahore, for an amount of Rs.5,04,422.82 with interest at the stipulated rate or 2% above the bank rate whichever is the higher from the date of the institution of the suit till the entire payment of the decretal amount.

2. The facts giving rise to this appeal in brief are that appellant 1 through appellant 2 opened a cash credit account No.CC‑68 on 21‑4‑1966 with the respondent‑bank and procured a loan of Rs.4,00,000 from the bank. According to averments in the plaint the appellants had been making certain payments and drawing over payments from the bank till 30‑9‑1970. During all this period the appellants have been acknowledging from time to time in the form of confirmation slip the outstanding amounts against them in this account regarding the said loan. According to the respondent on 30‑9‑1970 a sum of Rs.5,17,700.69 was due from the appellants and the respondent‑bank got demand promissory note executed from the appellants in favour of the bank regarding the said amount according to which the appellants agreed to pay interest at the rate of 4% per annum above the bank rate minimum 9% per annum with quarterly rests which has been produced in evidence as Ex.P.6. On 27‑10‑1970 the respondent bank filed the suit against the appellants for the recovery of an amount of Rs.5,95,218.57 alongwrth interest thereon at the rate of 9% per annum from 1‑10‑1970 till the date of realization of the whole of the debt m favour of the plaintiff. It was prayed that decree against the appellants may be passed jointly and severally with costs and the decretal amount be realized from the sale proceeds of hypothectated goods in the first instance and the balance, if any, from other properties of the appellant. It was averred in the plaint that on 30‑9‑1970 an amount of Rs.5,17,700.69 which was due from the appellants against the said loan was inclusive of the interest and other, charges etc, The appellants contested the suit by filing written statement. The receipt of loan of Rs.4,00,000 was admitted. It was stated in the written statement that the claim of the respondent bank relating to the rate of interest, nature of interest, bank charges and other incidental charges etc. was not admitted. It was pleaded that the interest and other charges detailed by the respondent‑bank were not warranted by law, the agreement and the established banking practice. The case of defendants 5 and 6 was that the firm Shifa Medico was re‑constituted and they ceased to be the partners of the said firm, therefore, they could not be made liable to pay the amount in dispute as partners of the firm as it now existed. On the pleadings of the parties the learned trial Court framed the following issues for trial:‑ (1) Are defendants No.5 and 6 not necessary or proper party? (2) Is this suit bad for misjoinder of causes of action? (3) Is this suit not maintainable in its present form? (4) Has plaintiff received any amount from defendant No.1 during the pendency of the suit, if so, what is that amount and what is the effect? (5) What amount is the plaintiff bank entitled to recover on the ground stated in the plaint? _ (6) Relief The respondent‑bank examined PW 1 and PW 2 in support of its claim and produced documents in evidence. The appellants examined Sami Ullah one of the defendants as DW.1.

4. The learned counsel for the appellants made a statement on 26‑1‑1981 that the appellants were prepared to pay claim provided easy instalments were made and some concession was granted in the interest and other charges. Learned counsel for the plaintiff was directed to file up to date statement of accounts with other necessary information. The plaintiff was also directed to file copy of the application submitted on behalf of the appellants for obtaining loan in the beginning showing the stipulated rate of interest and other charges with details of the loan obtained by the appellants. The respondent‑bank filed statement of accounts in Court on 28‑3‑1981. However, on 26‑4‑1981 learned counsel for the appellants made a request to the trial Court for the appointment of a commission. Consequently Sheikh Muhammad Ibrahim was appointed as Local Commissioner for the inspection of the accounts and thereafter to submit a report on or before 13‑6‑1981. He was specifically directed by the trial Court to make report as to whether various charges including interest claimed by the plaintiff were legally recoverable or not. The Local Commissioner submitted his report on 11‑6‑1981. According to the report of the Local Commissioner the appellants requested for obtaining cash credit account through letter dated 21‑4‑1966. The operation of the disputed account No.68 commenced on the same date as was also admitted in paras. 7 and 13 of the plaint and the Local Commissioner also pointed out that cash credit account started with a debit of Rs.4,00,000 by the appellants and the bank charged compound interest at the rate of Rs.7% per annum on the outstanding balance amount on monthly basis from 21‑4‑1966 to 25‑12‑1966 and thereafter interest at the rate of Rs.8% per annum from 26‑12‑1966 was charged from the appellants according to their own practice which continued to be charged upto 26‑7‑1967. The report goes on to state that the respondent‑bank informed defendants vide letter No.202 /4000 dated 14‑6‑1967 that from 1‑7‑1967 the rate of interest on the said loan would be charged at the rate of Rs.8% per annum against which the appellants protested through letter No.3543 dated 25‑7‑1967 Annex: 'E' stating that rate of interest had been unilaterally increased and was not justified. This letter was not replied by the bank. The local Commissioner concluded the remark with the finding that rate of interest at the rate of 9% per anum was chargeable only from 30‑9‑1970 when the appellants executed demand promissory note and not prior thereto. He, however, concluded that the interest at the rate of 7% per annum from 21‑4‑1966 to 25‑12‑1966 and at the rate of 8% from 26‑12‑1966 to 26‑7‑1967 and at the rate of 9% from 30‑9‑1970 to 27‑10‑1970, i.e. the date of the institution of the suit was in order, as having been agreed to and accepted by the appellants.‑He also came to the conclusion that compound interest had been charged on monthly basis from 21‑4‑1966 to 28-6‑1969 and thereafter on quarterly basis from the month of July, 1969.

5. The learned trial Court decided issues 1, 2 and 3 against the appellants, Under issue 4 it was held that the suit amount of Rs.5,17,700.69 was relatable is Account No.68 dated 21‑4.1966 since the amount of other loan recovery of which was also sought in the suit was paid by the appellants. Under issue No.5 the learned trial Court held that the plaintiff bank was not entitled to levy interest at the rate of 9% per annum from 31‑7‑1967 to 30‑9‑1970 which was against the contracted rate of 8% and the Court after calculating compound interest at 8% per annum found that on 30‑9‑1970 an amount of Rs.5,04,422.82 was due from the appellants as such Rs.15,E40.58 was found to have been charged in excess on account of this difference of rate of interest. As a result of this finding the suit of the respondent‑bank was decreed to the tune of Rs.5,tW,422.82 with costs and interest at the stipulated rate of 2% above the bank rate whichever was the higher from the date of institution of the suit till the entire payment of the decretal amount.

6. Learned counsel for the appellants challenged the impugned judgment and decree only to the extent of allowing compound interest at the rate of 8% for the period from 31‑7‑1967 to 30‑9‑1970, compound interest at 7% for the period prior thereto as also the grant of interest from the date of institution of the suit upto the date of the decree. He maintained that according to original agreement simple interest at the rate of 7% per annum was payable by the appellants for the period from 21‑4‑1966 to 29‑9‑1970 and there was no agreement between the parties prior to execution of pronote dated 30‑9‑1970 Ex.P.6, for the payment of either compound interest or at the increased rate.

7. We have considered the arguments. From the facts as noted above, it is evident that the dispute mainly related to nature and rate of interest which was to be charged for the period from 21‑4‑1966 to 29‑9‑1970. It is demonstratively clear from the record and documents of the respondent‑bank as pointed out by the Local Commissioner that according to original agreement simple interest at the rate of 7% per annum was chargeable. This is manifestly clear from the letter dated 22‑3‑1966 issued by the bank which has been noticed by the Local Commissioner who has attached copy of the same with his report. According to this document the agreement was that simple interest at 2% above the bank rate minimum 7% was chargeable on the amount of the loan advanced to the appellants. The respondent has failed to bring on record any evidence that this agreement was subsequently changed and the appellants agreed to pay compound interest at the said rate or at the increased rate of 8% per annum. It was only on 30‑9‑1970 that through promissory note Ex.P6 the parties entered into a fresh agreement changing the nature and rate of interest and making it compound interest at 4% per annum above the bank rate minimum 9% per annum which was to be chargeable henceforth. It is obvious that the bank could not charge compound interest at 7% or at the increased rate of 8% per annum unilaterally without there being mutual agreement between the parties to this effect. It has been noted by the Local Commissioner that the appellants protested against this unilateral increase in the rate of interest at the relevant time in writing which was not replied by the bank. Faced with this, situation, learned counsel for the respondent‑bank vaguely argued that compound interest at 7% at the increased rate of 8% per annum was permissible according to custom and usage of trade and the directions of the State Bank of Pakistan to the banks under which the bank was authorized to charge compound interest at the said rate. We are afraid the submission has no force. In the presence of express agreement between the parties that simple interest shall be chargeable at 7% per annum, the bank could not press into service so‑called custom and usage of trade and also the directions Vii: of the State Bank of Pakistan, to increase the rate of interest or change its nature unilaterally. The directions of the State Bank could not give rise to an agreement between the parties unless it was duly executed between them. The directions of the State Bank, therefore, might have authorized the bank to charge compound interest at 8% or 9% per annum but that could not be charged unless the bark had entered into agreement with the appellants to that effect as such mere such direction could not bring into existence an. agreement between the parties automatically. The argument is, therefore, repelled.

8. Learned counsel for the respondent‑bank then came out with the submission that as a matter of fact the appellants did not question the legality of action of the bank in respect of charging compound interest at 7% or at 8% in the written statement, therefore they cannot be allowed to raise any plea at this stage. As has been noticed above in para.7 of the written statement it has specifically been pleaded that the bank was not justified both according to law and the agreement between the parties to charge interest as has been done by it. A plea has been specifically raised, therefore, it can very well be argued by the appellants. Learned counsel for respondent‑bank lastly maintained that the appellants have been signing the confirmation slips from time to time issued to them which amounted to acknowledgement by them their liability to pay the sums mentioned therein which were calculated according to the compound interest at 7% and 8% for the period from 21‑4‑1966 to 25‑12‑1966 and from 27‑7‑1967 to' 29‑9‑1979 respectively, therefore, they are debarred from disputing their correctness. The submission has no force. Mere signing of confirmation slips in routine without having excess to the record of the bank and without there being any agreement to the effect that compound interest at the said rate would be chargeable, they could very well challenge the correctness of the same when it was claimed in the suit filed against them. As has been pointed out by the learned Local Commissioner the appellants were charged compound interest at 7% from 21‑4‑1966 to 25‑12‑1966 which was not permissible because according to agreement simple interest at the said rate was chargeable. For the foregoing reasons the findings of the trial Court allowing compound interest at 7% from 21‑4‑1966 to 25‑12‑1966 and at 8% for the period subsequent thereto upto 29‑9‑1970 cannot be sustained. We hold that simple interest at 7% per annum is chargeable from the appellants from 21‑4‑1966 to 29‑9‑1970 and the findings of the trial Court are hereby modified accordingly.

9. Learned counsel for the appellants argued that interest from the date of institution of the suit upto the date of the decree should not have been granted to the respondent‑bank, for, the appellants did not dispute their liability so far as the payment of principal amount of loan i.e. Rs.4,00,000 was concerned. According to them since this liability was never disputed by the appellants which itself established their bona fides as such the discretion in this respect should have been exercised in favour of the appellants in disallowing the interest for this period to the bank. We are afraid the argument carries the germs of its own defeat. If the appellants were not disputing their liability to pay the principal amount of Rs.4,00,000.00 there was nothing to prevent them to pay the said amount during the pendency of the suit to establish their bona fides which remained pending from 27‑10‑1970 till 8‑4‑1984. There is nothing on the record that the appellants ever made any genuine effort to pay off the said liability. The said amount of Rs.4,00, 00 was deposited by them in pursuance of the direction of this Court as contained in the order dated 2‑12‑1984, for, without the said deposit under the ‑Banking Laws the appeal could not have been admitted. From these facts it can safely be concluded that failure to discharge the said admitted liability by the appellants for such a long time was without any legal or moral justification, therefore, the appellants are not entitled to any concession so far as the interest on the said amount of Rs.4,00,000 is concerned. However, the appellants have made out a case for disallowing the grant of interest for the period from the date of the institution of the suit to the date of decree, regarding that part of the decretal amount which is recoverable as interest from 21‑4‑1966 to 29‑9‑1970. They have succeeded in establishing that the demand of the bank to charge compound interest from 21‑4‑1966 to 29‑9‑1970 at 7% and then at 8% per annum as noted above was not justified, therefore, we hold that the respondent‑bank is not entitled to interest for the period from the date of the suit to the date of decree on the decretal amount of interest from 21‑4‑1966 to 29‑9‑1970. The judgment and decree of the trial Court stands modified accordingly in this respect also.

10. In the result the appeal is partly allowed with no order as to costs. The impugned decree of the learned trial Court is modified as follows:‑ (a) The respondent‑bank will charge simple interest at the rate of seven per cent. per annum from 21‑4‑1966 to 29‑9‑1970. (b) The respondent‑bank will charge interest at the rate of nine per cent. with quarterly rests from 3‑9‑1970 to 27‑10‑1970; (c) The respondent‑bank will charge interest at the rate of nine per cent. with quarterly rests only on the principal amount of Rs.4,00,000 from 28‑10‑1970 (date of institution of suit) to 8‑4‑1984 (date of decree). (d) The appellant shall pay interest at the contracted rate or 3t the rate of two per cent. above the bank rate, whichever is higher, from 9‑4‑1984 till payment of the decretal amount. M.Y.H./S‑251/L. Appeal partly allowed.